HSBC India Manufacturing PMI Drops To 50-Month Low At 50.1

The Indian manufacturing sector continues to show weakness in its activity. According to the Manufacturing PMI data compiled by Markit Economics for HSBC, Indian manufacturing activity has seen a further slide in the month of May. This figure fell to 50.1 for the month of May, against the expectation of 51.1 and that of 51 recorded in the month of April 2013. This is the lowest reading witnessed in the last four years. Any reading above 50 shows expansion in activity and one below 50 shows contraction.

The HSBC Manufacturing PMI, which captures five key components of the sector, saw output decreasing for the first time since May 2009. Although production fell marginally, it was primarily due to weaker growth in incoming work and persistent power outages. Order books continue to swell for Indian companies, albeit at a slower rate. What seems to be a positive surprise is the rise in foreign orders, which was solid and showed the fastest growth since January 2013. The higher level of orders led to higher staffing levels during May, taking the current sequence of job creation to 15 months.

A clear divergence was seen in the input and output prices. Input prices rose, mainly contributed by the rise in cost of oil, diesel, chemicals and machinery parts. The prices of metals and plastic, though, saw a decline. However, despite an overall increase in input costs, output charges were lower for the first time in four years.

In view of the flow of a weak set of macro-economic data that we have been witnessing in the last week starting from the annual GDP growth rate at a decade’s low, followed by the HSBC Manufacturing PMI data at a 50-month low, we feel that RBI will cut the interest rates further in its forthcoming policy meeting in a bid to boost the economy.